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Determine the total portfolio value

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You are managing Fund X which invests in the Malaysian equity market. It has RM8 million in value and has a beta of 1.2. Your market analyst has reported an expected continuous slowdown in the Malaysian economy due to the second wave of Covid-19 infections and furthereconomic lockdowns. You would like to reduce the market exposure of beta to 0.8 by using derivatives. Currently, FTSE Bursa Malaysia KLCI stands at 1,600 points. The corresponding3-month futures (FKLI) is trading at 1,590 points with contract size of RM50 per index point.

Illustrate how the market risk exposure can be reduced for Fund X. Determine the total portfolio value if the KLCI trades at 1,550 points after 3 months.

Reference no: EM133070582

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